At its regularly scheduled meeting today, the Monetary Policy Committee (MPC) kept the official benchmark policy one-week repo rate unchanged at 8% but raised the late liquidity window lending rate from 12.75% to 13.5%. Since November 2017, the CBT has funded the market entirely through the latter, making it the effective policy rate. The MPC cited concerns about elevated inflation and inflation expectations, notably rising import prices. Both core and CPI inflation have been in double digits for eight consecutive months now; and the latter is likely to rise again this month (from 10.2% y/y in March) as a result of the currency weakening (TRY on average down -4.4% m/m in April, to date) and rising oil prices (Brent up +6% m/m) since Turkey is a net energy importer. Today’s MPC move is a step in the right direction as it should mitigate concerns that already loose economic policies is further eased ahead of the snap elections called for 24 June. However, we expect more tightening to be needed in order to facilitate a soft landing of the currently overheating economy (see also WERO 18 April 2018).
